JPMorgan Warns of Inflation Spike in Q2 and Q3 Due to Trump’s New Tariff Plan

JPMorgan analysts have issued a cautionary outlook for the U.S. economy, forecasting a significant surge in inflation during the second and third quarters of the year. The warning follows former President Donald Trump’s latest announcement of sweeping tariffs on imported goods.

In a note released on Thursday, JPMorgan stated, “We expect the inflationary impact to be most evident in the middle quarters of 2025.” According to the bank, the new tariffs could drive up the Personal Consumption Expenditures (PCE) price index by 1% to 1.5% over the course of the year.

Set to take effect from April 5, the trade measures include a minimum 10% tariff on all imported goods, with much steeper rates targeting key trade partners. The note highlights tariffs of 20% on EU imports, 24% on Japanese goods, and a 34% rate on Chinese products—raising China's average tariff rate to a staggering 54%.

JPMorgan estimates that the overall effective U.S. tariff rate will jump from approximately 10% to over 23%, sparking inflationary pressures across various sectors.

Beyond rising prices, the investment bank expressed concerns about broader economic fallout. It warned that the decline in consumer purchasing power could potentially push real disposable income growth into negative territory in Q2 and Q3. This reduction in spending power may also lead to a drop in consumer demand, increasing the risk of the U.S. edging closer to a recession.

While Trump suggested that these tariffs might be reduced if international trade partners ease barriers on American goods, uncertainty remains. A White House official hinted that additional Section 232 tariffs—potentially impacting sectors such as semiconductors, pharmaceuticals, and critical minerals—could follow, pushing the average tariff rate even higher.

With several nations already preparing retaliatory trade responses, JPMorgan anticipates rising geopolitical and economic tension. The analysts concluded that the unclear policy direction and uncertainty surrounding the duration of the tariffs could create an increasingly challenging environment for business investment and market stability.

(Sources: investing.com, reuters.com)